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By Shlomo Maital
Today’s New York Times has an unusual Op-Ed piece by James Rebanks, a British sheep farmer, who lives in the lovely Lake District. (I recall hiking there, when I was a student at U. of Manchester 50 years ago). He is touring the US to promote his new book, a memoir, “The Shepherd’s Life”.
Here is a key passage: “Economists say that when the world changes people will adapt, move and change to fit the new world. But of course, real human beings often don’t do that. They cling to the places they love, and their identity remains tied to the outdated or inefficient things they used to do, like being steel workers or farmers. Often, their skills are not transferable anyway, and they have no interest in the new opportunities. So, these people get left behind.”
We economists spin theories from our comfy offices, about how the force of social Darwinism (competition for resources) drives efficiency. You’re a farmer? Herd sheep? Your country imports cheap mutton? Tough for you. Find another trade. That’s life.
This is the economic theory. It’s time to rethink it.
Economic freedom should also mean the freedom to choose our livelihood, and to engage in it as long as we wish. Farmers are so few, so forgotten, and are so threatened..Rebanks writes about abandoned farms through the US, but who cares? Who even notices? America is flooded with cheap (and mostly unhealthy) food from abroad.
Rural America matters. So does rural EVERYwhere. Rebanks is right. Time to rethink the cruel free-market theory economists sold the world.
Last Saturday (shabbat), I had the privilege to read a passage from the Bible, Kings 2, in our synagogue. The passage tells how young King Joash restores the Temple, by raising crowdfund money, “everyone according to his heart” and to his soul. Money. Heart. Soul. Those three things must go together in any economic system that claims to be just and fair. An economic system without a heart or soul is unacceptable.
Nobel Prizes 2016
By Shlomo Maital
This year’s Nobel Prize winners:
Medicine/Physiology: Yoshinori Ohsumi, Japanese cell biologist. He discovered how cells recycle their wastes – an amazing and complex process that keeps cells from choking on garbage. Ohsumi asked a question that intrigued him, but that interested few others…
Economics: Oliver Hart (Harvard) and Bengt Holmstrom (MIT): contract theory. Especially “incomplete contracts”. See Hart’s American Economic Review 2001 article on financial contracting — enlightening, especially for Venture Capital.
Physics: David Thouless, F. Duncan Haldane, J. Michael Kosterlitz. Their mathematics (based on topology) revealed insights into ‘extreme state’ matter (e.g. very low temperatures, super-cooled, etc.), and may lead to important new products, perhaps in semiconductors and computing.
Chemistry: Jean-Pierre Sauvage, J. Fraser Stoddart, Bernard Feringa: synthesis of molecular machines. These tiny machines, the size of a single molecule, can do actual mechanical work. Also may lead to important innovations one day.
Note the common denominator: Willingness to ask really good questions, questions others aren’t asking, ability to take risks in research, tackle very challenging hard problems, and in some cases, defy the establishment by choosing a research direction others think is a dead end.
And the Peace Prize? To Colombian President Santos, and the peace agreement that ended 50 years of senseless civil war. We learn from Colombia what we already know, from Britain’s Brexit vote – beware of referendums, you cannot be sure what they will yield. Colombia will revote its peace agreement, narrowly defeated in a referendum, and gain approval. But Britain? Britain will leave the EU, for certain, a result very few expected, with major consequences for Europe and the world.
Nobel Prize for Economics: Jean Tirole Takes on the Giants!
By Shlomo Maital
The Nobel Committee that selects winners for the Economics Prize has sent a message. This year (today, actually) they announced the winner is Jean Tirole, a French economist, who teaches at Toulouse, and who studied at MIT. He is honored for the following (according to the London Guardian):
“This year’s prize in economic sciences is about taming powerful firms,” Staffan Normark, permanent secretary of the Royal Swedish Academy of Sciences, said as he named Tirole the winner of the 8m kroner (£700,000) prize.
Tirole, 61, began his work on regulation and oligopolies in the 1980s and published an influential book in 1993 with the late Jean-Jacques Laffont on regulation. The judges said Tirole is “one of the most influential economists of our time”.
They added: “He has made important theoretical research contributions in a number of areas, but most of all he has clarified how to understand and regulate industries with a few powerful firms.”
The panel said Tirole had shown the “deep and essential differences” between regulating companies in different sectors, such as telecom companies or banks. Imposing caps on prices could reduce the influence of monopolies in some sectors, but not in others, the judges said, pointing to Tirole’s use of game theory and contract theory.
“In a paper last year, Tirole scrutinised, with Roland Bénabou, the pay and motivation structure in industries such as banking. They write about a “bonus culture that takes over the workplace, generating distorted decisions and significant efficiency losses, particularly in the long run”.
Tirole did not share the prize but won it alone. It is the first time since 1999 that an American has not at least shared the Economics Prize.
Will policymakers and politicians listen to Tirole? Yesterday I spoke with a family friend, a lawyer, who is leading a class action suit against a Detroit mortgage bank. He affirmed that the U.S. Justice Dept. has never prosecuted a single criminal case against Wall St. offenders, who nearly destroyed the world. They’re just too powerful, he said. Some groups spend $400,000 A DAY on lobbyists in Washington. Apparently, it’s a good investment. I am fantasizing a court case, criminal case, in which Jean Tirole is called as a witness for the prosecution.